Crypto

What is a Smart Contract?

And how does it work?

Smart contracts have been a huge topic of discussion over the past few years and in today’s Blockchain Tutorial, you will be diving deep to learn more about them. 

If you’ve ever watched an episode of “Silicon Valley,” you’ve probably heard about them. The technology has become so popular that people are making fortunes off their development. This has spawned an entire industry in blockchain technology that involves creating smart contracts to automate everything from finances to supply chains to even art transactions.

These smart contracts are computer programs that are set up to automatically execute when certain conditions are met.

In this Blockchain Tutorial you will learn:

1. what a smart contract really is,
2. and how they work.

So, let’s dive in…

What is a Smart Contract?

Smart contracts are like the modern-day equivalent of a handshake. They are binding agreements that have been written into a digital contract and stored on a blockchain. The terms of the agreement are then made immutable, and can be verified with the click of a button.

While some people consider smart contracts to be a form of artificial intelligence, they are more akin to self-executing software programs. 

A smart contract is a computer program that is coded into a blockchain that is used to regulate, administer, and enforce the terms of a transaction or agreement. The contract uses cryptographic technology to enforce the rules and protocols set out in the code.

The smart contract is written in such a way that it is able to perform tasks without any outside intervention.  They are essentially self-enforcing programs that can be triggered and controlled through the blockchain itself and are able to enforce and execute a predetermined set of terms and conditions.

Smart contracts are used in many different areas, from the financial industry to medicine; and have been described as the “perfect contract” since they can be used to create any type of agreement.

They are able to process transactions, manage funds, share records, and even record ownership.  The applications are still being explored.  

This technology could be applied to a huge range of different industries, and in some cases, they are already being used in other areas of the economy.

Some of the most common examples include:

• A blockchain-based, peer-to-peer car sharing network
• An online platform which connects landlords and tenants
• A blockchain-based application which allows the public to vote on projects and proposals.

How Do Smart Contracts Work?

A smart contract is made up of two components:

• source code and;
• a blockchain.

The source code is typically written in a programming language. It defines the functions of a smart contract and specifies the actions and conditions under which they will be executed.

The smart contract also specifies the rules by which a user can interact with the contract, such as buying or selling an asset. The blockchain, on the other hand, is the shared ledger that records the state of the contract over time.

The source code is published on the blockchain, and it can only be changed using the “source code” editor that is part of the Ethereum network. The source code is then executed by a “client” (the code that interacts with the contract). In this way, a user can create a smart contract that executes a series of instructions which the blockchain keeps track of.

The Next Big Step Forward…

Smart contracts are the next big step forward in the evolution of how we do business with each other. And they have the potential to revolutionize many industries and create new ones. But like most things, there are a lot of challenges to overcome before they fully become mainstream.

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